Would-be pensioners already face poor annuity rates, and many are losing out even more by failing to get the most out of their pension pots.

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Poor annuity rates are at the top of the list of concerns for those coming up to retirement, but despite this pensioners are missing out on up to £124 million in income a year by failing to look for the best annuity deal.

Analysis by Key Retirement Solutions shows that retirees who look at the whole of market when shopping for an annuity, which is known as the 'open market option', rather than taking the annuity rate offered to them by their pension provider, gained an average of 21% more income.

A person with a pension pot of £25,000 could expect to gain an extra £248 a year, and with 500,000 annuities bought every year annuitants could be missing out on a combined £124 million. The number of annuities purchased is expected to rise to 850,000 over the next two years as more baby boomers hit retirement age.

Key Retirement Solutions said its average customer saw an average income rise of £429 because more people were taking out enhanced annuities, where pensioners are offered more money because of unhealthy lifestyles or medical conditions. The company said 62% of pensioners using its annuity service have qualified for an enhanced annuity.

Dean Mirfin, group director at Key Retirement Solutions, said: ‘It is simply wrong that people accept the default option from their pension provider when they could increase their income by an average of 21% or more.

‘Someone who is retired for 25 years is effectively giving up on more than £10,000 if they miss out on an average £429 a year in income. Customers should shop around as the default, and we continue to make this process as straightforward as possible. It only takes a matter of minutes to find out what income can be achieved.’

The pensions industry is trying to encourage consumers to compare annuity rates, and the Association of British Insurers has launched a compulsory code of conduct for its members that will provide information on how to shop around and give details of enhanced annuities. The code has already come into force and life companies have until 1 March 2013 to make the changes.

Very good article. In addition to getting more income from shopping around it is important to disclose all medical and lifestyle details to the IFA as this could lead to a much bigger income if the retiree qualifies for an http://www.enhancedlifeannuity.co.uk/

Great article Michelle. It's so important that retirees shop around for the best rate and do not ignore enhanced annuities.

However, always use your own policy as the benchmark for what you do as some old style pension policies contain guaranteed annuity rates that are much higher than the market rates currently available.

@mark22. It's difficult for Citywire to publish this information as enhanced annuity rates are generally bespoke to the applicant. To illustrate the point, out of 8 enhanced annuity providers I approached for a client last week, only 4 quotes an enhanced annuity. Two didn't quote and the other two felt my client didn't qualify for an enhanced annuity. The difference between the best and worst enhanced annuity quote was over 12.5% per annum!